Skeptical investors sell off tech stocks as NASDAQ nosedives | ABC NEWS

Summary

US technology stocks suffered their worst day in nearly two years, with a broad sell-off across the NASDAQ. Investor Roger Montgomery said the decline reflects a reassessment of companies exposed to the AI boom and follows a familiar boom-and-bust pattern seen with other new technologies.

Montgomery is concerned that enthusiasm for AI has encouraged heavy investment in data centres and other capacity. If supply grows faster than demand, companies may struggle to earn attractive returns on the capital they have invested. He also argued that AI providers could face intense competition and pressure to lower prices: consumers and businesses may choose a sufficiently capable, lower-priced AI service rather than pay a premium for the most advanced model.

He said major hyperscalers—including Google, Meta and Amazon—previously benefited from strong competitive advantages and high returns on equity, but are now competing with one another in AI. He described their AI-related cash flow as deeply negative and said some businesses generating billions of dollars in revenue are valued in the trillions, which he considers unsustainable. In his view, valuations remain inflated, though less so after the sell-off. He could not say whether the decline would continue but suggested there may be further downside.

Policy uncertainty may add pressure. The interview cited Texas governor-elect “Gina Henos” as proposing a pause on data-centre development until conditions are met, including unionized labour and safeguards against higher electricity and water costs for residents.

The discussion also covered potential effects on Australia. The Australian market had opened about 1.5% lower. Montgomery expected a possible rotation from AI-related stocks into non-tech businesses or defensive investments that had been relatively underpriced, while cautioning that these might simply “do less badly.”

Framework and key considerations

• Assess the business, not just the share price: Focus on the returns companies can generate on invested capital.
• Watch for a boom-to-oversupply cycle: Excitement around a new technology can lead to overinvestment, excess capacity and weaker returns.
• Evaluate competitive advantage and pricing power: AI competition could make services less differentiated and push prices down.
• Consider cash flow and valuation: Compare revenue and cash generation with market valuations. Montgomery questioned valuations in the trillions for businesses generating billions in revenue.
• Assess policy and infrastructure risks: Data-centre development may face constraints related to labour, electricity and water.
• Consider portfolio positioning: Montgomery suggested investors might rotate toward non-tech or defensive businesses, rather than assuming every stock will fall equally.

Assets and instruments mentioned

• The NASDAQ and US technology stocks; no individual tickers were given.
• Google, Meta and Amazon (hyperscalers).
• AI businesses and AI agents, as well as data centres.
• Marijuana stocks, meme stocks and SPACs, cited as examples of previous speculative booms.
• Potential investment areas: non-tech companies and defensive investments.

Numbers, cautions and disclosures

• The interviewer cited the NASDAQ as down about 30% since the beginning of October and 35% below its June peak. The wording in the subtitles is unclear on the exact measurement.
• The Australian market was reported about 1.5% lower at the open.
• The interviewer explicitly said the discussion was not financial advice. Montgomery also said he could not predict whether the sell-off would continue, but thought further downside was possible.

Presenters and sources: ABC News interviewer (unnamed); Roger Montgomery, Montgomery Investor.